Cosmo Films Ltd. (COSMOFILMS) - Director Report

Company director report

Your Directors are pleased to present their 40th Annual Report together withthe Audited Statement of Accounts of the Company for the year ended March 31 2017.

1. Summary Financial Results

The Financial Results of the Company for the year ended March 31 2017 were asfollows:

(Rs. in Cr)

Particulars

Standalone

Consolidated

Year Ended 31st March 2017

Year Ended 31st March 2016

Year Ended 31st March 2017

Year Ended 31st March 2016

Net Sales

1450.63

1434.44

1580.09

1615.58

Other Income

15.87

10.22

15.63

10.58

Profit before Interest Depreciation and Tax

181.99

201.46

167.26

196.84

Finance Cost (including interest)

28.80

28.78

30.29

30.18

Depreciation

34.00

31.17

39.69

35.68

Exceptional Item

(0.42)

(6.36)

(2.48)

(6.94)

Profit before Tax

118.77

135.15

94.80

124.04

Provision for Taxation

- Current Tax

(3.21)

4.84

(3.03)

4.85

- Deferred Tax

10.43

22.04

8.98

22.95

Profit After Tax

111.55

108.27

88.85

96.24

Extraordinary Item

-

-

-

-

Profit after Tax Including Extraordinary Item

111.55

108.27

88.95

96.24

Minority Interest

-

-

-

-

Appropriations:

Dividend-Equity Shares

-

19.44

-

19.44

Dividend Tax

-

3.96

-

3.96

General Reserve

-

-

-

-

Note: Previous year figures have been restated wherever necessary

2. Overview of Performance

During the financial year 2017 Speciality sales of the Company grew about 20% on YoYbasis. On full year basis revenue marginally declined by (2.2%) to Rs. 1580 crores fromRs. 1616 crores in financial year 2016 however there was 5% increase in sales volume.This lower sales price realization is primarily due to reduced raw material prices wherethe benefit was then passed on to the end customers. In addition there was drop incommodity film prices which to some extent was compensated by an increase in the sale ofhigher margin specialty products and benefits from operational efficiency improvements.

During the Financial Year 2017 EBITDA declined to Rs. 167 crores from Rs. 197 crores inFinancial Year 2016 with margins under pressure for most part of the second half (post midNovember 2016) due to the impact of demonetization. However margins started to recoversince the start of the year and with an increasing focus towards the higher marginSpecialty Film category and new product launches for Value Added Films. These businessdevelopments are likely to support the move toward normalized margins in the comingquarters.

Revenue (Crores)

During the financial year the Company was able to avail tax deduction on the newinvestment in plants and machinery allowable under the Income Tax Act. As the Companycommissioned new investment in the plant and machinery it was eligible for investmentallowance having overall impact of Rs. 9.8 Crores on its tax.

Company's overseas subsidiaries continue to be on improving trend operationally. Theoverseas subsidiaries achieved a break even in quarter four taken together at EBITDAlevel.

Company launched many new products during the financial year. Under packaging filmscategory high moisture barrier films aroma barrier films aroma and oxygen barrier filmswere launched. These films have excellent moisture and gas barrier properties. Underlamination category black velvet lamination films scuff free matte lamination films wereintroduced. Under industrial film category low noise tape was launched that is easy torelease and generates low noise on unwinding. Besides these there were many other newproduct launches.

3. Exports

The Company continues to strengthen its exports through brand visibility initiativestaken during the year. Exports during the year increased to Rs. 638 Crores from Rs. 612Crores in financial year 2016.

4. Share Capital

During the year under review there was no change in the Company's issued subscribedand paid-up equity share capital. On March 31 2017 it stood at Rs. 19.44 Cr divided into19440076 equity shares of Rs. 10/- each.

5. General Reserve

The Company has not transferred any amount to General Reserve during the Year.

6. Dividend

Equity dividend of Rs. 10.00 per share (Previous Year Interim Dividend of Rs. 10.00/-per share) has been recommended by the Board of Directors for the year ended March 312016 amounting to Rs. 19.44 Crores (Previous Year Rs. 19.44 Crores) on the Equity Sharecapital.

Post the development the Company has six wholly owned subsidiary companies. Pursuantto Section 129(3) of the Companies Act 2013 and Accounting Standard-21 issued by theInstitute of Chartered Accountants of India Consolidated Financial Statements presentedby the Company include the Financial Statements of its Subsidiaries.

Consolidated Financial Statements form part of this Annual Report. Statement containingthe salient feature of the financial statement of the Company's subsidiaries is enclosedas Annexure - A to this Annual Report.

In terms of provisions of Section 136 of the Companies Act 2013 the Company shallplace separate audited accounts of the Subsidiary Companies on its website atwww.cosmofilms.com. The subsidiaries of Cosmo Films Limited as on March 31 2017 arelisted hereunder:

 CF (Netherlands) Holdings Limited B.V.

 Cosmo Films Japan GK

 Cosmo Films Singapore Pte Limited

 Cosmo Films Korea Limited

 Cosmo Films Inc.

 CF Investment Holding Private (Thailand) Company Limited

8. Research and Development (R&D)

The Company takes pride in its continuous research and development which focus onproviding innovative solutions as opposed to simply producing commodity films. With theseconsistent efforts in research and development activities Cosmo is well placed to benefitfrom accelerated growth and drive new product development globally. Recently Cosmo hasdeveloped a special BOPP film that enhances the moisture resistance of cement bags. Thefilm is used for laminating block bottom cement bags which are made of woven PP materialand is already in commercial use by leading cement brands. Cosmo's special film providesadditional protection to the contents by adding a moisture barrier while enhancing theprint quality of the packaging.

 Expenditure on Research & Development

Particulars 31st March 31st March 2017 2016

A. Capital 4.33 0.31 B. Recurring 4.06 3.73

Total 8.39 4.04

The Company is focussing on specialty labels and high barrier films. Other focus areainclude:

Your Company has five state of the art manufacturing facilities spread across India(3) US (1) and Korea (1) with a manufacturing capacity of 196000 MT per annum of BOPPfilms 40000 MT per annum of Thermal Lamination Films 15000 MT per annum of MetalizedFilms and 10000 MT per annum of Coated Films. The Company has recently added a new linefor the production of BOPP films at Karjan Gujarat ahead of its schedule and at capitalcost lower than planned. The line is 10.4 meter wide with a capacity of 60000 MT perannum and is considered to be the most advanced line in India. The new installed capacityis expected to add an additional 35% to 40% production volume in Financial Year 2018.

During the year under review your Company incurred capital expenditure of Rs. 221.19Cr as compared to Rs. 83.83 Cr for F.Y. 2016.

10. Corporate Governance

Cosmo is committed to maintaining the best standards of Corporate Governance and hasalways tried to build the maximum trust with shareholders employees customers suppliersand other stakeholders.

A separate section on Corporate Governance forming part of the Directors' Report andthe certificate from the Practicing Company Secretary confirming compliance of theCorporate Governance norms as stipulated in the Securities and Exchange Board of India(Listing Obligations and Disclosure Requirements) Regulations 2015 ("ListingRegulations") is included in the Annual Report in Annexure - B.

11. Internal Controls Systems and Their Adequacy

The Company has in place a strong system of internal controls commensurate with thenature of its business and the size and complexity of its operations. These systems ensurethat all assets are safeguarded and protected against loss from unauthorized use ordisposition and that transactions are authorized recorded and reported quickly. Thesystems are routinely tested and certified by Statutory as well as Internal Auditors andcover all offices plant facilities and key areas of business. Independence of theinternal audit and compliance is ensured by direct reporting to the Audit Committee of theBoard. This process is standardized and generates alerts for proper and timely compliance.

A CEO and CFO Certificate forming part of the Corporate Governance Report furtherconfirms the existence and effectiveness of internal controls and reiterates theirresponsibilities to report deficiencies to the Audit Committee and rectify the same.During the year such controls were tested and no reportable material weaknesses in thedesign or operation were observed.

12. Risk Management

Cosmo has a robust process in place to identify key risks across the organisation andprioritise relevant action plans to mitigate these risks. The Risk Management Committeehas been entrusted with the responsibility to assist the Board members about the riskassessment and its minimization procedures which includes discussing the managementsubmissions on risks prioritising key risks and approving action plans to mitigate suchrisks.

The risk management procedure is reviewed by the Audit Committee and Board of Directorson regular basis at the time of review of quarterly financial results of the Company. Areport on the various risks that may pose challenge to your Company are set out as a partof Management Discussion and Analysis section of this report.

Cosmo's Risk Policy has been uploaded on Company's website at www.cosmofilms.com.

13. Vigil Mechanism / Whistle Blower Policy

The Company has adopted a Whistle Blower Policy establishing vigil mechanism toprovide a formal mechanism for the Directors and employees to report their concerns aboutunethical behaviour actual or suspected fraud or violation of the Company's Code ofConduct or ethics policy without fear of reprisal. The policy is accessible on theCompany's website.

14. Diversity of the Board

The Company believes that diversity is important to the work culture at anyorganisation. In particular a diverse Board among others will enhance the quality ofdecisions by utilizing different skills qualifications and professional experience forachieving sustainable and balanced development.

15. Directors (a) Chairman

Mr. Ashok Jaipuria is the Chairman & Managing Director of the Company.

(b) Appointment and Reappointment

Mr. Vivek Nangia has been appointed as Additional Director of the Company in capacityof Non Executive Independent Director w.e.f. 03 November 2016. Mr. Anil Kumar Jain isWhole Time Director of the Company retires by rotation and being eligible offer himselffor reappointment at the ensuing Annual General Meeting.

The Company has received necessary declaration from each Independent Director undersection 149(7) of the Companies Act 2013 that they meet the criteria of independence laiddown in section 149(6) of the Companies Act 2013 and Regulation 16 of SEBI (ListingObligation and Disclosure Requirements) Regulations 2015.

16. Key Managerial Personnel

During the year under review there was no change in KMP of the Company. The followingpersonnel's have been designated as KMPs as per the definition under Section 2(51) andSection 203 of the Act:

1. Mr. Ashok Jaipuria Chairman & Managing Director

2. Mr. A. K. Jain Director of Corporate Affairs

3. Mr. Pankaj Poddar Chief Executive Officer

4. Mr. Neeraj Jain Chief Financial Officer

5. Ms. Jyoti Dixit Company Secretary

17. Familiarization Programme for the Independent Directors

The Company follows a well-structured induction programme for orientation and trainingof Directors at the time of their joining so as to provide them with an opportunity tofamiliarise themselves with the Company its management its operations and the industryin which the Company operates. At the time of appointing a Director a formal letter ofappointment is given to him/her which inter alia explains the role function duties andresponsibilities expected of him/her as a Director of the Company. The Director is alsoexplained in detail the Compliance required from him/her under the Companies Act 2013the Listing Regulations and other relevant regulations and affirmation taken with respectto the same.

The induction programme includes:

1) For each Director a one to one discussion with the Chairman and Managing Directorto familiarise the former with the Company's operations

2) An opportunity to interact with the CEO CFO & Company Secretary business headsand other senior officials of the Company who also make presentations to the Boardmembers on a periodical basis briefing them on the operations of the Company strategyrisks new initiatives etc.

The details of the familiarisation programme may be accessed on the Company's corporatewebsite (www.cosmofilms.com).

18. Remuneration Policy

Your Company is driven by the need to foster a culture of leadership with mutual trust.Cosmo's remuneration policy which is aligned to this philosophy is designed to attractmotivate retain manpower and improve productivity by creating a congenial workenvironment encouraging initiative personal growth and teamwork besides offeringappropriate remuneration package. Pursuant to the applicable provisions of the CompaniesAct 2013 and the Listing Regulations the Board in consultation with its Nomination& Remuneration Committee has formulated a framework containing inter-alia thecriteria for performance evaluation of the entire Board of the Company its Committees andIndividual Directors including Independent Directors.

Members can download the complete remuneration policy on the Company's website(www.cosmo films.com).

In terms of the provisions of Companies Act 2013 read with the Rules issued thereunderand SEBI (Listing Obligation and Disclosure Requirements) Regulations 2015 the Board ofDirectors on recommendation of the HR Nomination and

Remuneration Committee have evaluated the effectiveness of the Board/Director(s) forthe year.

20. Board Meetings

The Company prepares a calendar and circulates to all the directors in advance. DuringF.Y. 2017 Five (5) meetings of the Board of Directors and four (4) Audit Committeemeetings were held. The intervening gap between the meetings was within the periodprescribed under the Companies Act 2013.

Details of the composition of the Board and its Committees and of the Meetings heldattendance of the Directors at such Meetings and other relevant details are provided inthe Corporate Governance Report.

21. Auditors

(a) Statutory Auditors

M/s. Walker Chandiok & Co. LLP Chartered Accountants were appointed as StatutoryAuditors of the Company in the 38th AGM (held on 06th August 2015) to holdoffice for a period of 5 years until the conclusion of the 43rd Annual GeneralMeeting subject to ratification by members at every AGM.

The Statutory Auditors seek ratification of their appointment for the Financial Year2017-18 at the ensuing Annual General Meeting.

The Company has received a letter from Walker Chandiok & Co. LLP CharteredAccountants expressing their willingness for their appointment to be ratified asStatutory Auditors of the Company and further confirmed that their ratification if madewill be in compliance with provisions of Section 141(3)(g) of the Companies Act 2013. TheAudit Committee of at its Meeting has recommended their ratification for the F.Y. 2017-18.

(b) Cost Auditors

Messrs Jayant B. Galande Cost Accountants were appointed as Cost Auditors of theCompany for the Financial Year F.Y. 2017. In accordance with the provisions of Section 148of the Companies Act 2013 read with the Companies (Audit and Auditors) Rules 2014 sincethe remuneration payable to the Cost Auditors is required to be ratified by theshareholders the Board recommends the same for approval by shareholders at the ensuingAGM.

(c) Secretarial Auditors

The Company has appointed M/s. DMK Associates Company Secretaries New Delhi toconduct its Secretarial Audit for the Financial Year ended March 31 2017. The SecretarialAuditors have submitted their report confirming compliance by the Company of all theprovisions of the applicable corporate laws. The Report does not contain anyqualification reservation or adverse remark. The Secretarial Audit Report annexed as Annexure- C to this report does not contain any qualifications reservation or adverseremarks.

22. Related Party Transaction

With reference to Section 134(3)(h) of the Companies Act 2013 all contracts andarrangements with related parties under Section 188(1) of the Act entered into by theCompany during the Financial Year were in the ordinary course of business and on an arm'slength basis. The details of the related party transactions as required under AccountingStandard-18 are set out in Note 30 to the standalone financial statements forming part ofthis Annual Report.

No Material Related Party Transactions i.e. transactions amounting to ten percent ormore of the annual consolidated turnover as per the last audited financial statementswere entered during the year by your Company. Accordingly the disclosure of Related PartyTransactions to be provided under section 134(3)(h) of the Companies Act 2013 in FormAOC  2 is not applicable. As per the Listing Regulations all related partytransactions are placed before the Audit Committee for approval. Prior omnibus approval ofthe Audit Committee has been obtained for the transactions which are of foreseen andrepetitive nature. The transactions entered into pursuant to the omnibus approval arepresented to the Audit Committee by way of a statement giving details of all related partytransactions. The Company has developed a Related Party Transactions Policy for thepurpose of identification and monitoring of such transactions and can be accessed on theCompany's website (www.cosmofilms.com).

23. Management's Discussion and Analysis Report

Pursuant to regulations 34 of the Listing Regulations Management's Discussion andAnalysis Report for the year is presented in a separate section forming part of the AnnualReport.

24. Deposits

The Company has not accepted deposit from the public within the ambit of Section 73 ofthe Companies Act 2013 and The Companies (Acceptance of Deposits) Rules 2014.

The details of energy conservation technology absorption and foreign exchange earningsand outgo as required under Section 134(3) of the Companies Act 2013 read with the Rule8 of Companies (Accounts of Companies) Rules 2014 is annexed herewith as Annexure - Dto this report.

26. Particulars of Loans Guarantees or Investments

The Company have duly complied with the provision of Section 186 of the Companies Act2013 during the year under review. The details of loans guarantees and investments arecovered in the notes to the Financial Statements.

27. Significant and Material Orders Passed by The Regulators or Courts

During the year under review no significant / material orders were passed by theregulators or the Courts or the Tribunals impacting the going concern status and theCompany's operations in future.

28. Change in Nature of Business if any

There was no change in the nature of business during the year under review.

29. Material Changes and Commitments if any Affecting Financial Position of TheCompany

Your Company closely monitors the growing need of the retail and packaging industry andin order to meet the growing demand Company has recently announced a further plan to setup a new production line for Specialized Polyester (Biaxially-Oriented PolyethyleneTeerphthalate) Film at Aurangabad Maharashtra with capacity of 36000 MT per annum. Thisline will require an investment of about Rs. 250 Crores which will be funded throughinternal accruals and debt. The line is scheduled to be commissioned by quarter three offinancial year 2019.

There were no other material changes / commitments affecting the financial position ofthe Company or that may require disclosure between March 31 2017 and the date of Board'sReport.

30. Listing with Stock Exchanges

The Company confirms that it has paid the Annual Listing Fees for the year F.Y. 2018 tothe NSE and the BSE where the Company's equity shares are listed.

31. Extract of the Annual Return

Pursuant to the provisions of section 92(3) of the Companies Act 2013 and rule 12(1)of the Companies (Management and Administration) Rules 2014 an extract of annual returnin form MGT 9 is enclosed as Annexure - E to this Annual Report.

32. Corporate Social Responsibility

As a socially responsible Company Cosmo is committed to increasing its CorporateSocial Responsibility (CSR) impact with an aim of playing a bigger role in sustainabledevelopment of our society. In pursuit of this objective a Corporate SocialResponsibility (CSR) Committee had been formed by the Company which oversees andfacilitates deliberation on the social and environmental consequences of each of thedecisions made by the Board.

The Company has in place a Corporate Social Responsibility Policy pursuant to theprovisions of Section 135 of the Companies Act 2013 read with the Companies (CorporateSocial Responsibility Policy) Rules 2014.

The initiatives undertaken by your Company during the year have been detailed in CSRSection of this Annual Report. The Annual Report on CSR activities in accordance with theCompanies (Corporate Social Responsibility Policy) Rules 2014 is set out herewith as Annexure- F to this Report.

33. Promotion of Women's Well Being at Work Place

Cosmo Films has zero tolerance for sexual harassment at workplace and has adopted aPolicy on prevention prohibition and redressal of sexual harassment at workplace in linewith the provisions of the Sexual Harassment of Women at Workplace (PreventionProhibition and Redressal) Act 2013 and the Rules thereunder for prevention and redressalof complaints of sexual harassment at workplace. There have been no complaints of sexualharassment received during the year.

34. Particulars of Employees And Related Disclosures

The information required pursuant to Section

197(12) of the Companies Act 2013 read with Rule 5(1) of Companies (Appointment andRemuneration of Managerial Personnel) Amendment Rules 2016 is also enclosed as Annexure- G (i) to this Report. Particulars of the Employees pursuant to section 197(12) ofthe Companies Act 2013 read with Rule 5(2) and 5(3) of Companies (Appointment andRemuneration of Managerial Personnel) Amendment Rules 2016 is enclosed as Annexure - G(ii) to this Report.

35. EMPOLYEE STOCK OPTIONS

The Company has an Employee Stock Option Plan for the Employees of the Company and itsSubsidiaries named as "Cosmo Films Employee Stock Option Plan 2015". ThePlan is in compliance with the SEBI (Share Based Employee Benefits) Regulations 2014 andis administered by the HR Nomination and Remuneration Committee of the Board constitutedby the Company pursuant to the provision of Section 178 of the Companies Act 2013.

The details of the Employee Stock Options Plan form part of the Notes to accounts ofthe Financial Statements in this Annual Report and also available on our website www.cosmofilms.com.

36. Director's Responsibility Statement

Pursuant to the section 134 (5) of the Companies Act 2013 the Board of Directors tothe best of knowledge and belief and according to the information and explanationsobtained by them hereby confirm that:

I. In preparation of the annual accounts applicable accounting standards have beenfollowed along with proper explanation relating to material departures

II. Accounting policies selected were applied consistently. Reasonable and prudentjudgments and estimates are made so as to give a true and fair view of the state ofaffairs of the Company as of 31st March 2017 and of the profits of the Company for theyear ended on that date

III. Proper and sufficient care has been taken for the maintenance of adequateaccounting records in accordance with the provisions of the Companies Act 2013 forsafeguarding the assets of the Company and for preventing and detecting fraud and otherirregularities

IV. The annual accounts of the Company have been prepared on a going concern basis.

V. Proper Internal Financial Controls were in place and that the Financial Controlswere adequate and were operating effectively.

VI. Systems to ensure compliance with the provisions of all applicable laws were inplace and were adequate and operating effectively.

37. Awards & Recognition

During the Year India Ratings and Research (Ind-Ra) a Fitch group company in itsrating review has upgraded Cosmo Films Ltd.'s (CFL) long-term credit rating to INDA+' from previous rating of IND A'.

38. Acknowledgement

Your Directors would also like to extend their gratitude for the co-operation receivedfrom financial institutions the Government of India and regulatory authorities and thegovernments of the countries we have operations in. The board places on record itsappreciation for the continued support received from customers vendors retailers andbusiness partners which is indispensable in the smooth functioning of Cosmo. YourDirectors also take this opportunity to thank all investors and shareholders and thestock exchanges for their continued support. Your Directors place on record their deepappreciation to employees at all levels for their hard work dedication and commitment.Their contribution to the success of this organization is immensely valuable.